HEC Paris2014-08-11 9:00 PM

Efficient purchaser incentive when dealing with suppliers implementing continuous improvement plans

Abstract

This paper presents incentive schemes in the framework of a collaborative purchasing cost reduction process with a supplier implementing a continuous improvement plan. Using a stochastic decision process formulation, we analyze the structure of the optimal policy and characterize its numerical robustness through numerical applications solved by dynamic programming. Then, we analyze two purchaser incentive schemes observed in practice. First, we describe some theoretical properties of the policies associated with these two schemes (schemes I and II) and show that these policies exhibit nonoptimal structures. Second, we estimate the quantitative loss for typical parameter values and, in particular, we show that for certain businesses this loss is significant. Then, we propose two easy-to-implement improvements (schemes III and IV), which result in near-optimal solutions and a significant impact on purchasing cost performances.

 

Author

L. KERBACHE, C. VAN DELFT

 

Departments

Operations Management & Information Technology, GREGHEC (CNRS)

 

Journal Information

International Transactions in Operational Research, July 2014, vol. 21, n°4, pp.673-701

 

Full Article

http://onlinelibrary.wiley.com/doi/10.1111/itor.12059/full

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HEC Paris

Founded in 1881 by the Paris Chamber of Commerce and Industry, HEC Paris specializes in education and research in management sciences. As a leading academic institution in Europe and worldwide, HEC Paris offers a complete and unique range of education programs for students and leaders.

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